Large regional variation in hospital utilization rates--with the West at the low end and the Northeast at the high end of the spectrum--has led many policy makers to conclude that there is considerable discretion in the development of hospital protocols. Several policies, of which Medicare's Prospective Pricing System (PPS) is a recent example, have been developed to encourage reductions in hospital utilization rates. However, the hospital is only one part of the health care system. The ultimate success of cost containment strategies targeted at the hospital will depend on how they affect the utilization of other health care services--particularly those provided; by physicians. This study will explore how policies and environmental changes that reduce hospital utilization might affect physician practice patterns. Do physicians treating patients in hospitals that exhibit low lengths of stay provide a different level or mix of services to their patients that other physicians? We will answer this question in two phases. First, we will study how cross-sectional differences in Medicare hospital use rates are related to variation in the provision of physician services to Medicare beneficiaries. Second, we will consider what changes in Medicare physician services, if any, have occurred during the first year of PPS. It seems quite clear that PPS has dramatically reduced lengths of stay among Medicare beneficiaries. The proposed methodology consists of tabular and multivariate analyses of Medicare claims data for 1983 and 1985. A theoretical model derived as an extension of the Pauly physician-agent model will be used to develop testable hypotheses. The study will exploit the new and extremely rich Part B Medicare Data System (BMAD) as well as other summary data produced by HCFA. These data will allow for corss-sectional and time-series analyses of differences in physician utilization rates, disaggregated by specialty as well as by type of service and provision site.